In last night’s conference call with analysts, executives of Savvis (SVVS) said that a number of potentially large customers were taking longer to make decisions about lucrative managed hosting deals. One key deal that’s going down to the wire is a hosting and network services contract with Reuters, which expires next month. Reuters was recently purchased by Thomson, which has created some suspense about the service renewal. Here are comments from Savvis Chief Financial Officer Jeffrey Von Deylen:
Reuters today roughly is about a $50 million account. … Essentially in the past two and a half years, they’ve had an opportunity on the legacy network business to migrate if they so choose and they have decided not to. So we’re working aggressively with them as they think about their Thompson/Reuters merger. … But they haven’t given us any clear signals one way or the other which way they’re going. We’ll continue to work with them and I think we’ll kind of get our niches on the network side, and then continue to try to meet their needs on the hosting side.
There was also discussion of power density in older data centers and its impact on demand for space.
Last year two “below-market” colocation contracts totaling 56,000 square feet of space were not renewed. Savvis has never identified the customer, but there have been reports that it was Google (GOOG). The deals were signed during a period of financial distress for Savvis’ predecessors (Exodus and then Cable & Wireless USA), and Savvis’ goal is to now fill that space with higher-value customers. The company has sold enough managed hosting services to replace the revenue, but has lagged its stated timetables in filling the space. In his comments yesterday, Savvis CEO Philip Koen suggested that the age and power density of the facilities were an issue.
“We do see the market for first generation data centers, the ones built around 2000, coming closer to a supply/demand equilibrium,” Koen said. “These are still great centers we’re happy to offer to customers. But they’re not getting as rapid a take-up as we saw a year or so ago. For 2008, we’ve taken our projection down slightly to reflect that trend, and we continue to look for customers who want managed, as well as colo.” He added:
The majority of our footprint today is at over the 100 watts per square foot capability, as reflected in the new builds. The demand for data center space at 100 watts and below is still good, so I don’t want anyone to think that somehow it’s difficult to sell. The reality is that those are data centers that were built 2000-2001…. There’s more supply available for people that don’t need over 100 watts per square foot capability. So that environment just as the demand has more choices to pick from. As you go up over 100 watts, there’s a lot less supply and a lot more demand. … I think it’s a simple factor of where the supply and demand curve is for two different products.”
A full transcript of the Savvis conference call is available at Seeking Alpha.